Myron Scholes, co-author of the Black-Scholes formula of options pricing, has said Goldman Sachs and other institutions should be forced to take a hit if they make accidental trades.
The current model allows firms to cancel transactions, but Mr Scholes has told the Financial Times there should be a change in the rules to teach brokers to be more careful when modifying their automatic trading systems.
He made the comments just after Goldman Sachs mistakenly flooded the US options market with a large number of unintended trades on Tuesday (20 August).
"If trades are not cancelled and Goldman (and others) internalised all of the losses associated with program errors and bad algorithms, they would be more careful," he said.
The incident was the latest in a number of technology issues afflicting the US securities industry and may cost the investment bank tens of millions of dollars in losses, according to the news provider.
By Tony Aynsley